Investors agreed to sell back 64.4 percent of the Sh116.2 billion ($900 million) Eurobond before maturity, leaving Kenya with over Sh41 billion on the table.
The investors have agreed to sell Sh74.8 billion ($579.6 million) worth of Eurobonds to the State at the end of the buyback period, which closed on Monday night.
This means that the Treasury is expected to continue servicing the Sh41.3 billion Eurobond tapped six years ago until it reaches full maturity in 2027.
The Treasury had expected to retire the Sh116.2 billion ($900 million) early using proceeds of a new Sh193.7 billion ($1.5 billion) Eurobond issued last week at a rate of 9.5 percent.
The $900 million was to be repaid in three equal tranches of Sh38.7 billion ($300 million) starting May, next year and 2027.
The buyback was aimed at easing the burden of paying the Sh116.2 billion in two years and extending the repayment to 2036 using the new Eurobond.
“As at the expiration deadline, the Republic had received valid tenders of $579,600,000 in aggregate principal amount of the notes for purchase pursuant to the offer, which is less than the maximum tender amount of $900,000,000 as announced by the Republic on 27 February 2025,” the London Stock Exchange indicated in its disclosure of the Kenya Eurobond buyback results on Tuesday.
The undersubscription of the buyback at 64.5 percent means the Treasury will have more cash than planned.
It will have a balance of Sh118.9 billion from the new Eurobond compared to the planned Sh77.5 billion after the buyback.
The Treasury had planned to use the balance to reduce other foreign debts, including the costly syndicated loans.
“Proceeds from the 2036 Eurobond will be used to refinance existing external debt including the planned buyback of Kenya’s $900 million Eurobond maturing in 2027,” the Treasury said in a statement in February.
The government raised Sh193.7 billion ($1.5 billion) from a new Eurobond last month, which has a coupon or interest rate of 9.5 percent and will be redeemed in three equal instalments of Sh64.5 billion ($500 million) in February 2034, February 2035 and February 2036.
Kenya is expected to take a Sh10.3 billion hit from higher interest rates on the new dollar bond tapped to repay the cheaper Sh116.2 billion ($900 million) 2019 Eurobond, which came with an annual interest rate of seven percent.
The new bond is expected to pay investors annual interest of Sh18.4 billion ($142.5 million) compared to Sh8.1 billion ($63 million) for the 2019 Eurobond.
The higher refinancing costs for Kenyan Eurobonds mirror a higher burden for taxpayers amid the weakening of the country’s credit risk profile.
The buyback of the 2019 bond is the second after the one in February 2024 when Kenya paid off investors who bought the debut Eurobond of 2014.
The buyback of the 2014 issue used proceeds of another Eurobond sale that matures in 2031.
While the buybacks have helped ease the refinancing pressures, they have come at relatively higher costs, setting up the government for costlier and longer repayments.
“This transaction follows the successful issuance of the 2031 Eurobond in February 2024 and the full payment of the 2024 Eurobond. It aligns with the government’s strategy to smooth the maturity profile of Kenya’s external debt and proactively manage public debt liabilities,” the Treasury added.
Kenya was forced into the February 2024 Eurobond buyback after investors feared a potential sovereign default from the then-looming Sh258.3 billion ($2 billion) 2014 Eurobond payout.
The fears triggered a sharp depreciation of the shilling on market speculation connected to the maturity.
The Treasury has also started to target local bonds for similar buybacks and recently paid off Sh50 billion worth of bonds that were due to mature in April and May, easing the headache of settling multiple domestic debts that are maturing in the coming weeks.
